UGI Utilities, Inc. Gas Division And UGI Penn Natural Gas, Inc. Universal Service Program. Final Evaluation Report

UGI Utilities, Inc. Gas Division And UGI Penn Natural Gas, Inc. Universal Service Program Final Evaluation Report July 2012

Table of Contents Table of Contents Executive Summary... i Evaluation Questions and Research... i UGI s Universal Service Programs... ii Customer Survey... ix CAP Analysis...x Recommendations... xii I. Introduction...1 A. Background...1 B. Objectives of the Evaluation...2 C. Organization of the Report...2 II. UGI s Universal Service Programs...4 A. Program Overview...4 B. Customer Assistance Program (CAP)...7 C. Low-Income Usage Reduction Program (LIURP)...20 D. Hardship Fund (Operation Share)...25 E. Customer Assistance Referral and Evaluation Services (CARES)...28 III. Customer Surveys...31 A. Customer Survey Methodology...31 B. Survey Results...33 C. Key Survey Findings...60 IV. CAP Impacts Analysis...63 A. Goals...63 B. Methodology...63 C. Data Attrition...65 D. CAP Participant Poverty Level...67 E. Retention Rates...67 F. Arrearage Forgiveness...69 APPRISE Incorporated

Table of Contents G. Shortfall Forgiveness...72 H. Affordability...74 I. Bills and Payments...77 J. Energy Assistance...80 K. Collections Impact...81 L. Summary of CAP Data Analysis Findings...82 V. Summary of Findings and Recommendations...84 A. Program Administration and Procedures...84 B. Program Impact...86 APPRISE Incorporated

Executive Summary Executive Summary This evaluation report applies to UGI Utilities, Inc. Gas division ( UGI Gas ) and UGI Penn Natural Gas, Inc. ( PNG ). (Collectively, UGI Gas and PNG are referred to herein as UGI.) UGI has implemented a set of Universal Service Programs to assist low-income customers and to meet requirements set by Pennsylvania s Public Utility Commission ( PUC or the Commission ) orders and agreements. The Universal Service goals of the PUC are as follows. To protect consumers health and safety by helping low-income customers maintain affordable utility service. To provide affordable utility service by making available payment assistance to low-income customers. To help low-income customers conserve energy and reduce residential utility bills. To ensure utilities operate universal service and energy conservation programs in a costeffective and efficient manner. APPRISE conducted an evaluation of UGI s Universal Service Programs to assess the performance and impact of these programs. This report describes the research that was conducted, the findings from that research, and recommendations for modifications to improve the programs. Evaluation Questions and Research The Bureau of Consumer Services ( BCS ) of the Commission has developed standard evaluation questions to guide Universal Service Programs evaluations. 1. Is the appropriate population being served? 2. What is the customer distribution for each program by poverty guidelines? 3. What are the CAP retention rates? Why do customers leave CAP? 4. Is there an effective link between participation in CAP and participation in energy assistance programs (LIHEAP, hardship funds, and other grants)? 5. How effective are CAP control features at limiting program costs? 6. How effective is the CAP and LIURP link? 7. Has collection on missed CAP payments been timely? 8. Does participation in Universal Service Programs decrease service terminations? 9. Does participation in Universal Service Programs lower collections costs? 10. Is the CAP program cost-effective? 11. How can Universal Service Programs be more cost-effective and efficient? 12. Is the program sufficiently funded? To answer these questions, we conducted the following evaluation activities. APPRISE Incorporated Page i

Executive Summary 1. Background Research: We reviewed UGI s program documents to ensure that we had a good understanding of UGI s Universal Service Program. 2. Manager and Staff Interviews: We conducted interviews with UGI managers and staff to fully document program design and implementation. 3. CAP Agency Interviews: We conducted interviews with staff at a sample of six CAP Administering Agencies to document how the program is implemented. 4. Customer Survey: We conducted telephone interviews with CAP participants and lowincome nonparticipants to assess understanding, impact, and satisfaction with the program. 5. Data Analysis: We used available data to develop gross and net performance statistics for the CAP program. UGI s Universal Service Programs On July 1, 2010, UGI Gas and PNG, along with their affiliated distribution companies, UGI Utilities - Electric Division ( UGI Electric ) and UGI Central Penn Gas, Inc. ( CPG ) (collectively, UGI Gas, PNG, CPG and UGI Electric shall be referred to herein as the UGI Companies ), jointly filed the initial version of the Universal Service and Energy Conservation Plan for 2011-2013. The UGI Companies submitted an amended plan on July 8, 2010, to correct the effective period of the plan, which was proposed to run from January 1, 2011 through December 31, 2013. On March 23, 2011, the Commission issued a Tentative Order approving, in part, the amended plan and seeking comments from interested parties. After a comment and reply comment period, the Commission entered a Final Order on October 31, 2011 at Docket No. M-2010-2186052 ( Final USP Order ), conditionally approving the amended plan and directing the UGI Companies to file a second amended plan consistent with the direction contained in the Final Order. In accordance with the Final Order, the UGI Companies filed a second amended plan on November 30, 2011. UGI s original implementation period for their current three-year Universal Service Program plan was proposed for January 1, 2011 through December 31, 2013. However, due to the regulatory process described above, UGI s Universal Service Plan was not finally approved until the submission of the second amended plan on November 30, 2011. UGI made immediate program changes effective December 1, 2011. However, the largest change to the program, arrearage forgiveness conducted over three years on a monthly basis, is scheduled for implementation on January 1, 2013, as directed in the Final USP Order. Due to the date of implementation and the timing of this evaluation, the results in this report are not reflective of the current plan program changes. Customer Assistance Program (CAP) CAP provides a more affordable gas bill for eligible low-income, payment-troubled residential customers. APPRISE Incorporated Page ii

Executive Summary Goals and Resources The CAP budget increased from $8.2 million in 2011 to $9.3 million in 2013. Total 2011 CAP expenditures were $7.24 million, approximately $1 million dollars lower than budgeted, likely due to lower than expected program participation. 1 Approximately 75 percent of these costs were for CAP credits and 19 percent for arrearage forgiveness. UGI Gas projects that the expected maximum enrollment and the enrollment level that the approved funding can support is up to 10,000 CAP participants and PNG projects an enrollment of up to 7,500 CAP participants, both through 2013. If they exceed these levels, they will file a petition seeking to increase the maximum enrollment limits. 2 Administration CAP is administered by contracted Community Based Organizations (CBOs) that report to UGI s CAP Program Administrator. UGI Gas has eight CAP Administering Agencies and PNG has six agencies. The agencies are responsible for enrollment, referrals, customer education, monitoring accounts for payment compliance, and re-certifications. Eligibility Customers must meet the following eligibility requirements to enroll in CAP. Referral by UGI or a CBO. Household income verified at 150 percent of poverty or less. Residential heating or non-heating customer with active energy service. UGI must be the primary gas supplier. Requirements To remain eligible for CAP, customers must agree in writing and meet the following requirements. Make monthly CAP payments. Apply for and direct LIHEAP Cash or Crisis grants to UGI. Conserve energy. Participate in LIURP and other weatherization services, if eligible. Provide access to the meter for an actual reading every other month and complete customer meter reading cards in interim months. Participate in all educational, assistance, social, or governmental programs recommended by the administering agency. Immediately report changes in family size, income, or address. Apply for any assistance grant for which the customer is eligible. 1 As explained later in the report, UGI believes that the lower participation is due to lower gas prices, increased Operation Share funding, increased LIHEAP funding, the longevity of the CAP program, and structured collections practices that are followed by UGI that do not allow customers to get too far behind on their gas bills. 2 These enrollment limits were approved in Docket No. R-2008-2079660 and Docket No R-2008-2066708, respectively. APPRISE Incorporated Page iii

Executive Summary UGI reported that they administer these obligations with sufficient flexibility to provide the assistance intended by the program. Therefore, UGI or one of the CAP Administering Agencies may agree to waive or modify one or more of the participant obligations in extraordinary circumstances. CAP Discounts CAP participants are billed an equal CAP payment each month based upon gross income, energy usage, and the allowable maximum shortfall amount. The income component of the CAP payment ranges from seven to nine percent of income, depending on poverty level. The annual maximum shortfall is $950 for heating customers and $560 for non-heating customers. Arrearage Forgiveness Pre-program arrearages are defined as the full UGI balance on a customer s account at the time of CAP enrollment. UGI forgives one-third of pre-program arrearages after the participant has been in CAP for six consecutive months and has made six full payments. The balance of the pre-program arrearage is then forgiven at the end of 18 months and at the end of 30 months if the customer remains in the program and makes all required CAP payments. Beginning in January 2013, 1/36 of customers pre-program arrearages are forgiven each month that they make a complete and timely monthly payment. CAP Re-certification Upon request, and at least annually, CAP participants must provide evidence of continued program eligibility. CAP participants who receive LIHEAP are not required to complete an in-person recertification. Income verification is not required for LIHEAP recipients. CAP Participation Average monthly CAP participation in 2011 for UGI Gas and PNG was about 12,600. UGI Gas enrollment declined from 2009 to 2010, and again in 2011. UGI believes that the decline is due to lower gas prices, increased Operation Share funding, increased LIHEAP funding, the longevity of the CAP program, and structured collections practices that are followed by UGI Gas that do not allow customers to get too far behind on their gas bills. CAP Changes UGI submitted a second amended plan to the PUC on November 30, 2011 and implemented several changes on December 1, 2011. Given the timing of this evaluation, the impact of most of these changes cannot yet be evaluated. The changes that were made are summarized below. Program consolidation UGI Universal Service Programs were consolidated across all UGI Companies and there was a name change to CAP for all UGI Companies. Shortfall The maximum shortfall for heating was reduced from $1,146 to $950 and the maximum shortfall for non-heating was reduced from $614 to $560. APPRISE Incorporated Page iv

Executive Summary Minimum monthly payment The minimum monthly payment for heating increased from $18 to $25 and the minimum monthly payment for non-heating increased from $12 to $15. Commodity charge The CAP payment now allows for the commodity charge to be reduced below the current purchased gas cost rate. Additional changes are planned. Arrearage forgiveness on a monthly basis beginning in January 2013. Plan to index maximum shortfall to gas rates. Consideration will be given to removing customers from CAP for failure to complete the annual recertification process. UGI will be writing their tri-annual Universal Service Plan in 2013. This plan will be effective for 2014 through 2016. Additional program changes may be considered as a result of UGI s participant analysis and this evaluation. Successes UGI feels that they have accomplished the following major successes with the CAP. UGI decided not to implement a CAP surcharge or CAP Plus program with the Department of Public Welfare s (DPW) LIHEAP policy change. The Companies intend to comply with DPW LIHEAP policy by applying LIHEAP cash grants to the asked to pay amount for CAP customers. In an effort to mitigate the impact on non-cap customers, and as a result of decreasing gas costs, the Companies proposed, and the Commission approved in the Final Order, to decrease the maximum annual CAP credit from $1146 to $950 for heating customers and from $614 to $560 for non-heating customers. The 2013 arrearage forgiveness change should improve the program, as CAP participants will receive forgiveness more frequently. Challenges One of the challenges that UGI faces in CAP is to find the appropriate balance of CAP costs to their non low-income customers. Additionally, complex programming is required for the CAP, and UGI must continue to update and maintain their web-based COS. With respect to the CAP Administering Agencies, UGI works to balance the requirements of the agency with UGI s requirements. Low-Income Usage Reduction Program (LIURP) UGI s Low-Income Usage Reduction Program (LIURP) reduces the energy consumption of low-income customers by installing energy conservation measures and providing energy conservation education. The program aims to reduce customer arrearages and collection and termination costs by reducing energy consumption and making energy bills more affordable. APPRISE Incorporated Page v

Executive Summary Customers receive an on-site energy audit. Based on the findings from the audit, energy saving measures are selected. LIURP Resources and Production UGI s 2011 LIURP budget was approximately $800,000 and PNG s was $850,000. Each company completed just over 200 LIURP jobs in 2011. Most recently the program is saving eight to ten percent of pre-treatment energy usage. Program Management and Administration UGI contracts with Community Based Organizations (CBOs) for the provision of energy audits and measure installation. UGI also contracts with an independent verifier to ensure that the weatherization was completed in accordance with LIURP standards. Eligibility Customers must meet the following criteria to be eligible for LIURP. Active residential gas heating customer. Household income at or below 150 percent of the federal poverty guidelines 3. Annual consumption above average usage. Continuous service for twelve months. Premises are suitable for weatherization services. The customer s premise is the customer s primary residence. Program Coordination UGI coordinates with other utilities to provide comprehensive program services to their customers. All of the agencies that UGI works with implement the PA WAP program as well, so they are able to provide more measures and increase savings. Program Changes UGI is considering the following changes to the LIURP program. Conduct an independent LIURP evaluation. Improve the weather normalization procedures by identifying and isolating baseload usage. Expand or remove pilot programs. Successes UGI has implemented the following initiatives to improve the quality of LIURP services and awareness of conservation and assistance programs in the community. UGI Conservation Day UGI hosts this annual event to educate the caseworkers and Company employees so they can share information with their customers. LIURP Contractors Workshop UGI holds this annual event (started in 2010) to educate contracted agencies on a LIURP topic and review program-specific updates. 3 Up to 20 percent of LIURP participants may have household income at 151%-200% of the federal poverty guidelines. APPRISE Incorporated Page vi

Executive Summary UGI s Customer Outreach System (COS) The system has been modified to allow all program parties to access customer information and track the progress of each participant, and provides information for reporting to the PUC. LIURP Budget Utilization In recent years, UGI has utilized the available LIURP funding and has not had significant carryover. Challenges UGI has faced some challenges in the program. The primary issue is increasing energy savings. Another challenge is working with the LIURP agencies to ensure that they meet their contract obligations, including adherence to their LIURP budget. Operation Share Operation Share Energy Fund, provides assistance to residential customers who face a hardship in paying their energy bill. This program has the following objectives. Provide customers, employees, and the public an opportunity to contribute donations to help their neighbors who are unable to pay their energy bills. Give financial assistance to current customers that have fixed or low incomes, are unemployed, disabled, or faced with a catastrophic situation. Demonstrate UGI s compassion for customers who suddenly face a crisis and need temporary assistance. Provide additional funds and support to community organizations that are dedicated to helping low-income households and households facing crises. Resources For every two dollars that customers, employees, or outside sources contribute to Operation Share, UGI will issue an additional one dollar in energy vouchers, up to the committed matching funds contribution. The total amount committed by UGI and PNG was $65,000 in energy funds and up to $36,000 in matching funds. Administration UGI contracts with a network of CBOs to administer the program. Because Operation Share is a 501(c)(3), UGI staff do not participate in the determination of grants, other than to refer applications to the CBOs for consideration. Eligibility UGI has established the following eligibility criteria. Residential account with one of the UGI Companies. Not a CAP participant. Premise must be the customer s primary residence. APPRISE Incorporated Page vii

Executive Summary Active heating or non-heating utility account. Did not receive an Operation Share grant in the last 12 months. Outstanding balance exists on the utility bill. Income at or below 200 percent of the federal poverty level. Demonstration of inability to pay energy bills. The applicant must authorize the Agency to obtain account history information. Benefits Customers may receive a maximum grant of up to $400 for UGI Gas or $800 for PNG every 12 months. PNG grants are higher because of additional funds provided from the Tennessee Gas Pipeline Settlement Proceeds. The Tennessee Gas Pipeline Gas Settlement Proceeds were allocated to the Operation Share energy fund, as approved in Docket No. P-2009-2149107, which changed the grant amount in the following ways: (1) from $300 to $400 for UGI Gas; (2) from $300 to $800 for PNG; and (3) from $300 to $800 for CPG. When the Tennessee funds no longer become available, UGI intends to equalize the amounts among the UGI Companies at $400. Thus, when these funds are no longer available, at the end of 2012, PNG grants will revert to the $400 maximum. In 2011, PNG awarded 678 grants averaging $422 and UGI awarded 795 grants averaging $313. Successes UGI has been able to award additional grants and larger grants due to the Tennessee Pipeline funding. They have a dedicated website page that makes it easier for customers to learn about the program and donate if they are able to. The Company also has a recurring bill insert to increase awareness and donation opportunities for UGI Customers. This helps to reinforce the Company s commitment to assistance programs. Challenges UGI continues to work to increase program awareness due to additional funding from the Tennessee Gas Pipeline Gas Settlement Proceeds. CARES UGI s Customer Assistance Referral and Evaluation Services (CARES) Program provides assistance and referrals to payment-troubled customers to help improve their bill payment problems. This program is targeted to customers with temporary, immediate needs. CARES also provides extensive LIHEAP outreach to help increase awareness of the program and encourage all eligible households to apply. Resources UGI and PNG designate a total of $70,000 each year for LIHEAP and CARES outreach. APPRISE Incorporated Page viii

Executive Summary Eligibility CARES is available to any residential customer who faces a temporary hardship that could result in the loss of utility service. Any residential customer with a delinquent balance, a negative ability-to-pay, or special needs may be eligible for CARES. Program Changes UGI is considering the following changes for CARES. Increasing automation for referrals between programs. Adding CARES to UGI s web-based tracking system. Increasing community outreach with other UGI departments, such as marketing. Successes UGI has worked to educate their staff, caseworkers, and the community about the availability of assistance. They provide updates and information on the program on an annual basis to educate Customer Care center employees, they provide updates to the caseworkers, and they have a presence in the community attending local events. Challenges The challenge they face is linking together the community services and programs that they offer at UGI. They would like to do more cross referrals between programs. Customer Survey APPRISE conducted a telephone survey with participants in UGI s Customer Assistance Program and low-income nonparticipants to develop information on customer knowledge, understanding, and satisfaction with the CAP. Key findings from the CAP Survey are highlighted below. Demographic Characteristics: the survey showed that CAP participants differed from the nonparticipant LIHEAP recipients in several ways, and that the CAP participants had characteristics that made them vulnerable to energy costs. CAP participants were more likely to rent, have young children, have disabled household members, and have education that did not include a bachelor s degree. Income Sources and Employment: CAP participants were more likely to have assistance income and less likely to have retirement income than the nonparticipants. There was not a significant difference in the percent that received employment income, but participants were more likely to report that they had been unemployed in the past year. CAP Enrollment: Most CAP participants did not feel that enrollment was difficult. Only five percent said that CAP enrollment was difficult and two percent said it was very difficult. CAP Understanding and Knowledge: CAP participants appeared to understand the program, but most could not estimate their monthly CAP discount. APPRISE Incorporated Page ix

Executive Summary CAP Impacts: CAP appeared to have a positive impact on the ability of customers to pay their energy bill and other bills, reduce gas bills, and reduce gas usage. CAP Satisfaction: Participants felt that CAP was important in helping them to meet their needs and were very satisfied with the program. CAP Analysis CAP program, billing and payment data, and collections data were used to develop gross and net performance statistics for the CAP program and answer many of the evaluation questions. There were several goals for the CAP impacts analysis. Characterize the CAP participants. Analyze CAP retention rates. Assess the impact of CAP on energy affordability. Determine whether CAP improves participants bill payment compliance. Ascertain the impact of CAP participation on LIHEAP receipt. Evaluate whether CAP impacts collections actions and costs. Methodology UGI provided APPRISE with household data, Universal Service Program participation data, billing and payment data, and collections data for 2009, 2010, and 2011 CAP participants, and low-income customers who never participated in the CAP. Customers who enrolled in the CAP between January 1, 2010 and December 31, 2010 were included as potential members of the study group. This group was chosen for the analysis, as one full year of post-program data is required for an analysis of program impacts. The comparison group was constructed for the CAP data analysis to control for exogenous factors. We obtained a sample of LIHEAP recipients who had not participated in CAP, to utilize as a comparison group. For the CAP program impact analysis, we examined pre and post-treatment statistics. The difference between the pre and post-treatment statistics for the treatment group is considered the gross change. This is the actual change in behaviors and outcomes for those participants who were served by the program. Some of these changes may be due to the program, and some of these changes are due to other exogenous factors, but this is the customer s actual experience. The net change is the difference between the change for the treatment group and the change for the comparison group, and represents the actual impact of the program, controlling for other exogenous changes. In addition to the treatment and comparison group, we analyzed program statistics for all customers who participated in the CAP in 2011. The 2010 enrollee treatment group, described above, is a select group of customers who recently enrolled in 2010 and did not participate in CAP for at least a year before that enrollment. It is necessary to look at this subset of CAP participants to understand how the program impacted affordability and APPRISE Incorporated Page x

Executive Summary payment behavior. However, looking at all 2011 CAP participants provided a more comprehensive picture of the characteristics of program participants. CAP Analysis Findings Key findings from the CAP data analysis are summarized below. CAP Retention: The retention analysis showed that customers who enroll in CAP remain in the program for the time period analyzed (one year) unless they close their account. Arrearage Forgiveness: 67 percent of the 2010 enrollee analysis group received arrearage forgiveness at some point in the year after enrollment. Mean arrearages were $722, and the mean amount of arrearages forgiven was $163. Shortfall Forgiveness: 78 percent of the 2010 enrollee analysis group received shortfall forgiveness at least once in the year after enrollment. The mean amount forgiven was $365 in the year after enrollment. Energy Burden: Energy burden is the percent of income spent on the energy bill. The Pennsylvania Public Utility Commission has set target ranges for energy burden based on poverty level and fuel. Of all customers participating in CAP for all of 2011, 35 percent had an energy burden that was above the PUC targeted energy burden based on poverty level. While 77 percent of those below 50 percent of the poverty level were above the PUC target, 12 percent of those above 100 percent of the poverty level were above the PUC target. Affordability: The analysis showed that CAP had a large impact on affordability. Participants received an average annual CAP discount off the full bill of $351. Mean energy burden declined from 15 percent to ten percent, and the percent of customers above the PUC targeted energy burden declined from 65 percent to 22 percent. Gross and net changes were all statistically significant. Payment Compliance: 2011 CAP participants who were on the program for a full year were likely to pay a large percentage of their bill. The analysis showed that 15 percent paid the full CAP bill, 28 percent paid between 90 and 99 percent, 28 percent paid between 75 and 90 percent, and 28 percent paid less than 75 percent of the annual CAP bill. Payment Impact: CAP had a positive impact on participants ability to pay their bills. While 31 percent paid the full CAP bill in the year prior to enrollment, 55 percent paid the full CAP bill in the year following enrollment. An additional 21 percent paid between 90 and 99 percent of the CAP bill. LIHEAP Assistance: One of the CAP obligations is that participants apply for LIHEAP. The analysis showed that 56 percent of CAP participants who were on the program for all of 2011 received LIHEAP, with an average grant of $307. CAP did appear to have a APPRISE Incorporated Page xi

Executive Summary positive impact on LIHEAP receipt. The net change in the percent who received LIHEAP was an increase of 11 percentage points. Collections Impact: CAP did not impact collections actions and costs. Recommendations This section provides recommendations for program administration and procedures, and for increasing the impact of the programs. Program Administration and Procedures UGI has contracted with agencies and developed tools to effectively administer its Universal Service Programs. Agency staff members have a good understanding of UGI s programs and other community services that are available. UGI s Customer Outreach System helps UGI representatives and agency representatives to effectively implement and manage the programs. Universal Service Programs operate effectively and provide important benefits to low-income customers to help them maintain utility service and meet their other household needs. This section provides recommendations for program administration and procedures that may improve the efficiency and/or effectiveness of program implementation and ensure that customers receive the greatest benefit from program services. 1. Consider allowing agencies to have greater access to data on the Customer Outreach System. The Customer Outreach System (COS) provides CAP Administering Agency access to determine customers monthly CAP payment and enroll customers in CAP. However, representatives do not have access to the customer s billing and payment history if the customer has not yet enrolled in CAP. 4 2. Provide regular updates to agencies to inform them of any program changes. UGI staff members have regular contact with CAP Administering Agency staff and are responsive to agencies questions and concerns. However, it is important to ensure that there is an effective mechanism to convey program changes to agencies. 3. Enforce or place more emphasis on LIHEAP requirement. UGI states that a CAP obligation is that customers apply for LIHEAP. UGI should have a mechanism in place to remind customers of this requirement and the availability of agencies to assist with LIHEAP application if needed. 4 UGI has stated that they are willing to consider this recommendation, but would first need to work through their concerns about maintaining customer privacy. APPRISE Incorporated Page xii

Executive Summary 4. Conduct oversight to ensure that agencies are furnishing all expected program services. UGI s three-year plan states that agencies are responsible for usage reduction education, budget counseling, and referrals. UGI should clarify the agency requirements, make sure they are understood by the agencies, and conduct periodic observation of agency/customer meetings to determine if the agencies are performing these tasks as expected. 5. Ensure that UGI Customer Service representatives are knowledgeable about the Universal Service Programs. One agency representative stated that customer service representatives sometimes provide clients with incorrect information about CAP. UGI should ensure that they periodically review Universal Service Program requirements and benefits with staff. 6. Provide additional training to CAP Administering Agencies to ensure that they fulfill contracted responsibilities to assist CAP applicants, rather than referring customers back to UGI for assistance. Responsibilities for CAP application and enrollment are shared between UGI and agencies. Customers may receive the CAP application from UGI or from the agency. Some of the interviewed agencies reported that they will refer customers back to UGI for a CAP application or eligibility determination. Agencies should be trained that it is their responsibility to provide the application or eligibility determination to the customer if applicable, rather than having the customer need to take the extra step. 7. Provide application form and information in Spanish. One agency stated that they have many Spanish clients and need to bring in a translator to assist these customers. UGI should consider providing all forms and information in Spanish. 8. Work with lower-performing LIURP agency to improve performance. UGI is working with the low-performing LIURP agency that has consistently produced poor energy saving results. UGI should continue to work with low performing agencies, and provide the agency with specific information regarding areas that require improvement. The agency should be required to provide progress reports to the Company on the steps that are taken to improve their performance. UGI should continue to contract with WAP agencies to benefit from the certifications and experience of such agencies. UGI is considering implementation of a third party LIURP evaluation. If UGI does implement this research, they should consider including study of the training and experience of LIURP staff at the low-performing agency compared to other agencies, and assessment of whether additional staff training is needed. APPRISE Incorporated Page xiii

Executive Summary 9. Integrate CARES with other UGI Universal Service Programs. UGI is considering adding CARES to the Customer Outreach System and increasing automation of referrals between Universal Service Programs. This change would be an improvement to program coordination and should be implemented if possible. Program Impact Analysis of bills and payments for CAP enrollees in the year before and after enrollment, and in comparison to changes for nonparticipant low-income customers showed that the program had large, positive impacts on affordability. Customers received discounts that averaged $350, more than 20 percent of the pre-enrollment bill. Energy burden declined from an average of 15 percent to 10 percent, and the percent of customers with energy burden above the PUC target level declined from 65 percent to 22 percent. However, some customers still face unaffordable energy bills, even while participating in CAP. This section provides some recommendations for increasing affordability for the most vulnerable customers, assisting additional customers, and increasing the probability that customers can successfully transition out of the program. 1. Consider a larger shortfall maximum for lowest income CAP participants or elimination of the maximum shortfall component. The analysis showed that the lowest income customers were most likely to exceed the PUC energy burden targets. UGI should consider increasing the maximum shortfall amount for customers in this poverty group or elimination of the maximum shortfall component. 2. Assess lowest income CAP customers for LIURP and prioritize those with high usage. All CAP customers with income below 50 percent of the poverty level should be assessed for LIURP and prioritized for treatment if they are high usage. Currently, customers are solicited based on high usage first. More emphasis should be considered for high usage customers in the lowest income range. 3. Market CAP to lowest income LIHEAP recipients. The customer survey showed that nonparticipant CAP customers faced some significant problems paying their gas bills and meeting their other needs. UGI should continue to solicit LIHEAP recipients for CAP application. 4. Consider forgiveness of excess shortfall for customers who leave CAP. Customers who exceed maximum shortfall amounts are not asked to repay the discounted amount, but the excess shortfall remains with their account and the customers are expected to pay that amount if they leave CAP or close their account. UGI should consider forgiving excess shortfall for customers who leave CAP and pay APPRISE Incorporated Page xiv

Executive Summary their full UGI bill for a certain period of time. UGI may also consider eliminating the maximum shortfall component of the program. APPRISE Incorporated Page xv

Introduction I. Introduction This evaluation report applies to UGI Utilities, Inc. Gas Division ( UGI Gas ) and UGI Penn Natural Gas, Inc. ( PNG ) (collectively, UGI Gas and PNG referred to herein as UGI.) UGI has Universal Service Programs to help their low-income customers with their energy needs. APPRISE conducted an evaluation of UGI s Universal Service Programs to assess the performance and impact of these programs. This report describes the research that was conducted, the findings from that research, and recommendations for modifications to improve the programs. A. Background UGI has implemented a set of Universal Service Programs to meet requirements set by Pennsylvania s electric and gas restructuring legislation and various Public Utility Commission orders and agreements. The Universal Service goals are as follows. To protect consumers health and safety by helping low-income customers maintain affordable utility service. To provide affordable utility service by making available payment assistance to lowincome customers. To help low-income customers conserve energy and reduce residential utility bills. To ensure utilities operate universal service and energy conservation programs in a costeffective and efficient manner. The Universal Service Programs include the following. A CAP payment assistance program that is designed to make energy bills more affordable by furnishing payment subsidies. A LIURP program that is designed to make energy bills more affordable by helping to reduce usage. A CARES program that is designed to assist households in developing appropriate strategies for maintaining energy service. An Operation Share hardship fund program that is designed to furnish emergency payments to households that cannot pay their energy bills. APPRISE Incorporated Page 1

Introduction B. Objectives of the Evaluation The Bureau of Consumer Services (BCS) of the Public Utility Commission (PUC) has developed standard evaluation questions to guide Universal Service Programs evaluations. 1. Is the appropriate population being served? 2. What is the customer distribution for each program by poverty guidelines? 3. What are the CAP retention rates? Why do customers leave CAP? 4. Is there an effective link between participation in CAP and participation in energy assistance programs (LIHEAP, hardship funds, and other grants)? 5. How effective are CAP control features at limiting program costs? 6. How effective is the CAP and LIURP link? 7. Has collection on missed CAP payments been timely? 8. Does participation in Universal Service Programs decrease service terminations? 9. Does participation in Universal Service Programs lower collections costs? 10. Is the CAP program cost-effective? 11. How can Universal Service Programs be more cost-effective and efficient? 12. Is the program sufficiently funded? To answer these questions, we conducted the following evaluation activities. 1. Background Research: We reviewed UGI s program documents to ensure that we had a good understanding of UGI s Universal Service Program. 2. Manager and Staff Interviews: We conducted interviews with UGI managers and staff to fully document program design and implementation. 3. CAP Agency Interviews: We conducted interviews with staff at a sample of six CAP Administering Agencies. 4. Customer Survey: We conducted telephone interviews with CAP participants and lowincome nonparticipants to assess understanding, impact, and satisfaction with the program. 5. Data Analysis: We used program, billing and payment, and collections data to develop gross and net performance statistics for the CAP program. C. Organization of the Report Four sections follow this introduction. Section II UGI s Universal Service Programs: This section provides a detailed review of the design and implementation of UGI s Universal Service Programs. Section III Customer Surveys: This section provides a summary of the CAP participant and nonparticipant survey. APPRISE Incorporated Page 2

Introduction Section IV CAP Analysis: This section provides data and statistics from our analysis of CAP participant and comparison group data. We provide analysis of CAP customer characteristics, CAP retention rates, and arrearage forgiveness. We analyze the impact of the CAP on affordability, bill coverage, energy assistance, energy usage, and collections actions. Section V Summary of Findings and Recommendations: This section provides a summary of the key findings and provides recommendations for UGI s Universal Service programs based on the analyses in this report. APPRISE prepared this report under contract to UGI. UGI facilitated this research by furnishing program data to APPRISE. Any errors or omissions in this report are the responsibility of APPRISE. Further, the statements, findings, conclusions, and recommendations are solely those of analysts from APPRISE and do not necessarily reflect the views of UGI. APPRISE Incorporated Page 3

UGI s Universal Service Programs II. UGI s Universal Service Programs The UGI Companies have implemented a set of Universal Service Programs to comply with Public Utility Commission Regulations. The programs are designed for low-income, residential customers who may be having difficulty paying their energy bills. On July 1, 2010, UGI Gas and PNG, along with their affiliated distribution companies, UGI Electric and CPG, jointly filed the initial version of the Universal Service and Energy Conservation Plan for 2011-2013. The UGI Companies submitted an amended plan on July 8, 2010, to correct the effective period of the plan, which was proposed to run from January 1, 2011 through December 31, 2013. On March 23, 2011, the Commission issued a Tentative Order approving, in part, the amended plan and seeking comments from interested parties. After a comment and reply comment period, the Commission entered a Final Order on October 31, 2011 at Docket No. M-2010-2186052 ( Final USP Order ), conditionally approving the amended plan and directing the UGI Companies to file a second amended plan consistent with the direction contained in the Final Order. In accordance with the Final Order, the UGI Companies filed a second amended plan on November 30, 2011. UGI s original implementation period for their current three-year Universal Service Program plan was January 1, 2011 through December 31, 2013. However, due to the regulatory process described above, UGI s Universal Service Plan was not finally approved until the submission of the second amended plan on November 30, 2011. UGI made immediate program changes effective December 1, 2011. However, the largest change to the program, arrearage forgiveness conducted over three years on a monthly basis, is scheduled for implementation on January 1, 2013, as directed in the Final USP Order. Due to the date of implementation and the timing of this evaluation, the results presented in this report are not reflective of the current plan program changes. A. Program Overview UGI s Universal Service Program includes four components, the Customer Assistance Program (CAP), the Operation Share Energy Fund, the Customer Assistance and Referral Evaluation Services (CARES) program, and the Low-Income Usage Reduction Program (LIURP). UGI also encourages low-income payment-troubled customers to apply for the Low-Income Home Energy Assistance Program (LIHEAP) and Pennsylvania s Weatherization Assistance Program (WAP). UGI provides information on these programs to their residential customers and assists them to receive help from community-based organizations (CBOs). Outreach on the program is provided through regular bill inserts and through UGI employees. UGI staffs a special tollfree number that customers can call to obtain program information. UGI has the following staff members who are responsible for these programs. APPRISE Incorporated Page 4

UGI s Universal Service Programs Manager, Customer Accounting Services and Customer Outreach Supervisor. UGI has one full-time staff member who supervises the group and is responsible for fulfilling all program reporting requirements. Senior Customer Outreach Representative. UGI has one full-time staff member who is primarily responsible for LIHEAP and CARES outreach, as well as for supervising seasonal LIHEAP staff. Customer Outreach representatives. UGI has seven full-time and one part-time representative, responsible for day-to-day operations of LIURP, CAP, Operation Share, and LIHEAP. They maintain daily contact with the CBOs that administer the programs. Data Analyst. UGI has one full-time data analyst who is responsible for Universal Service Program reporting. The management team at UGI reports that the team is very committed to the success of the programs. The group is often referred to as a mini social service group within the UGI Company and the team contributes to the success of each of the programs. They report high levels of support from UGI s management team, with UGI s Managers, Directors, and Vice Presidents frequently speaking at community events about UGI s programs. UGI has a Customer Outreach System (COS) that allows agency representatives to access customer information needed for program enrollment and enter CAP, Operation Share, and LIURP application data right into the system. The benefits of the system include the following. Agency representatives do not need to call UGI to determine program eligibility or benefit amount. Agency representatives can review customers payment compliance. The system calculates the number of CAP enrollments, certifications, and customer contacts each month to generate the agency invoice. UGI Administrators can track the progress, participation levels and program benefits by Company. UGI call center representatives can view the status of the customer, determine their step in the process, and determine which agency the customer is working with. Having the CAP, LIURP, and Operation Share programs on one system allows for the flexibility to cross-solicit between programs and determine the best option for the customer. The administrative burden for both the agency caseworkers and UGI teams is reduced. Tasks are generated and managed through the system. APPRISE Incorporated Page 5

UGI s Universal Service Programs UGI offers the following Universal Service Programs. 1. Customer Assistance Program (CAP) CAP provides a more affordable gas bill for eligible low-income, payment-troubled residential customers. 2. Low-Income Usage Reduction Program (LIURP) LIURP is UGI s weatherization program that reduces the energy consumption of lowincome customers by installing energy conservation measures and providing energy conservation education. 3. Operation Share Energy Fund Operation Share Energy Fund, UGI s hardship fund, provides assistance to residential customers who face a hardship in paying their energy bill due to an unforeseen situation. The fund provides customers and employees with an opportunity to assist neighbors who have fixed or low incomes, are unemployed, disabled, or faced with a catastrophic event. 4. Customer Assistance and Referral Evaluation Services (CARES) CARES provides assistance and referrals to payment-troubled customers to help improve their bill payment problems. The program identifies special needs customers and refers them to programs or agencies that can provided needed services. Table II-1 provides the annual cost for UGI s Universal Service Programs for 2009-2011. Total costs for 2011 were $9.31 million. Almost 80 percent of the costs were for the CAP and over 20 percent were for LIURP. The CARES and hardship fund made up a small percentage of Universal Service program costs. Table II-1 UGI Universal Service Costs CAP LIURP CARES Operation Share TOTAL 2009 UGI Gas $5,051,419 $1,682,262 $48,155 $1,866 $6,783,702 PNG $3,520,853 $917,614 $12,300 $3,367 $4,454,134 TOTAL $8,572,272 $2,599,876 $60,455 $5,233 $11,237,836 2010 UGI Gas $4,076,934 $755,161 $99,392 $10,755 $4,942,242 PNG $2,291,789 $851,297 $44,311 $6,750 $3,194,147 TOTAL $6,368,723 $1,606,458 $143,703 $17,505 $8,136,389 2011 UGI Gas $3,996,287 $1,068,201 $35,544 $8,760 $5,108,792 PNG $3,243,172 $928,115 $25,736 $7,188 $4,204,211 TOTAL $7,239,459 $1,996,316 $61,280 $15,948 $9,313,003 APPRISE Incorporated Page 6

UGI s Universal Service Programs B. Customer Assistance Program (CAP) CAP provides a more affordable gas bill for eligible low-income, payment-troubled residential customers. Goals and Resources Table II-2 displays the CAP budget for 2011 through 2013. The table shows an annual CAP budget that increased from $8.2 million in 2011 to $9.3 million in 2013. Table II-2 CAP Budget Company 2011 2012 2013 UGI Gas $4,945,152 $5,215,500 $5,490,000 PNG $3,320,877 $3,570,000 $3,825,000 Total $8,266,029 $8,785,500 $9,315,000 Table II-3 displays CAP expenditures for 2009 through 2011. The table shows that expenditures were approximately $1 million dollars lower than budgeted in 2011, likely due to lower than expected program participation. Total CAP expenditures for the two companies were $7.24 million for 2011. Approximately 75 percent of these costs were for CAP credits and 19 percent for arrearage forgiveness. Table II-3 CAP Expenditures Company Program Component 2009 2010 2011 UGI Gas PNG Administration $311,262 $253,905 $241,116 CAP Credits $3,880,384 $3,082,493 $3,114,227 Arrearage Forgiveness $859,773 $740,535 $640,944 Total $5,051,419 $4,076,934 $3,996,287 Administration $103,492 $218,158 $211,413 CAP Credits $2,507,177 $1,101,767 $2,330,114 Arrearage Forgiveness $910,184 $971,865 $701,645 Total $3,520,853 $2,291,789 $3,243,172 Total Total $8,572,272 $6,368,723 $7,239,459 UGI Gas projects that the expected maximum enrollment and the enrollment level that the approved funding can support is up to 10,000 CAP participants and PNG projects an APPRISE Incorporated Page 7